Multinational drug companies in India are in a quandary. India's drug price regulator, the National Pharmaceutical Pricing Authority (NPPA), increased the retail price of 62 domestically manufactured drugs in April 2011. The affected drugs are primarily used to treat diabetes and rely on domestically produced insulin. Local drugmakers are rushing to ramp up production of these drugs to take advantage of the price hike. Meanwhile, larger multinational firms, which have long sought retail price increases from the Indian government for their imported medicines (to treat diabetes as well as other conditions) are largely feeling disappointed because their pleas have been turned down.

The pricing process

PHOTO: DAVID H. WELLS/GETTY IMAGES

Ranjit Shahani, vice-chairman of Novartis India says, "A price increase for imported drugs is always an uphill task, notwithstanding exchange-rate fluctuations. In any case, the average price increase [is normally] less than 1 to 2%." Drug costs passed onto consumers are susceptible to increases or decreases each time NPPA revises its prices. NPPA's role is to constantly review the price of drugs retailed by domestic firms and compare them with those of global drugmakers selling drug products in India, in a bid to fix the price. Its responsibilities also include monitoring the availability of medicines throughout the country, and fixing or revising the prices of medicines accordingly. Drug manufacturers, both domestic and international, are expected to sell the price-controlled-drugs at the prices fixed by NPPA.

That said, the 1–2% increase that is usually applied falls below inflation levels. Global drug manufacturers importing into India have not benefitted from a price increase on their products for nearly a year. According to NPPA, and as described below, this is because global firms failed to provide necessary details about their imports, which are needed by NPPA to calculate a retail price.

NPPA asks importers to disclose the cost of manufacturing, the selling price of the drug in the country of origin, and the cost of the same drug in approximately a dozen other countries. The regulator then uses a specific calculation to determine the cost of the imported drug in India. NPPA allows up to a 50% markup for the domestically determined cost.

Global manufacturers importing drugs into the country are requesting retail price increases based on insurance and freight costs that they must pay to bring in the drug products. NPPA, however, claims that the overall goal should be to "make drugs affordable," according to NPPA Chairman S.M. Jharwal, whose office was taken over in May 2011.

Drug affordability and accessibility are especially important for diabetics in India, adds Jharwal. NPPA increased the price of locally manufactured human insulin by 18.55% after considering the rise in packing material costs needed to send the drug products across the country.